Selling private label products on Amazon requires a good bit of flexibility and reactive decision-making, which is where the true fun is found. When I started this collaborative product launch with you guys, I wanted to share every aspect of launching and selling online with full transparency, which I anticipated would include various challenges along the way, with suppliers, importing, competition on Amazon and more. Until now (can you hear me knocking on wood?), we have had good experiences with our supplier, just a few hiccups importing (our products were caught up at US customs for a few days), and now we’re seeing some increased competition with new sellers in the niche. Bring. It. On!

This is a long post and I tried to be as detailed as possible. Take your time to work through the numbers, and tweet at us with any questions. And please share this article too, I know a lot of people want to see the real numbers behind Amazon private label products. Before we go any further, some high level overview:

Our product went live on Amazon on December 7th . From that date until today, February 3rd, we have sold 471 units and $12,307 in sales. Not bad! But we of course need to figure out what it cost to achieve this figure in sales. We’ll dig in to that further, this is what our unit sales and revenue have been like, per Amazon’s Seller Central Dashboard:

I have gone into more detail on the sales before, but now I wanted to dig in to the expenses of launching a product. People often get starry-eyed seeing a handsome six-figure number for Amazon “sales”, but it’s obviously the Gross Margin (after expenses are accounted for) that is more relevant. My goal for any product that I sell on Amazon is to hit a 100% Return on Investment, meaning that for every dollar I put in, I would expect to receive a dollar coming out.

So let’s first review what the fixed and upfront expenses are. Fixed costs will be anything that does not change, no matter how many units are sold. For a typical business, this would include rent, salaries, insurance, etc. Fortunately, the beauty of Amazon’s business model means that we don’t have many of these costs to deal with! However, we did have upfront costs in order to get the product and listing active. We will not have to pay any of these costs again:

Note: we did not actually have to pay all of these costs, like the Product Photography, which was donated to us by Robert House. We were in China when receiving samples so actually got all of them for FREE, not even a penny for shipping 🙂 Our in house graphic designer did the design work. That being said, it is more instructive and realistic to include it as a normal expense as opposed to free.

The following expenses are our Variable Costs, or those that change depending on how many units we sell. In a typical business, a variable cost may be hourly wages, material or ingredient costs, fuel for your car, etc. In our case, this variable costs include cost of goods sold, shipping, Amazon fees, etc. For our first 1000 units ordered, they are as follows:

Fixed Costs (for first 1000 units)

Shipping:

$812 for 100 air express (3 days)$1499 for 200 air cargo 15 days$1125 for 700 ocean freight all inclusive, fees, customs,$942 for Inbound Shipping to Amazon Warehouses from Port

TOTAL SHIPPING: $4378

Note – on order 2, our total shipping will be under $2000, we chose to expedite the first order so we could start our case study sooner.

Cost of Goods Sold (COGS):

Bamboo Sticks: $2640 for 1000 (includes polybag and label)

TOTAL COGS: $2640

Promotions and Advertising:

Product Giveaway Cost(50 units): $647

I calculated the “Product Giveaway” cost as $7.92 in Amazon Fees based off $27.99 retail price, plus the $7.02 cost per unit, minus the $1.99 that we “sold” it for on Review Kick. This means we spent $12.95 for each unit we gave away, multiplied by the 50 giveaways. I don’t plan to do any more giveaways for the first 1000 units.

This chart shows how our Review Analytics in Review Kick*. You can see that that a majority of our reviews have come from the promotions that I have run on Review Kick, and we have some organic reviews as well (also all 5 star reviews, which makes my heart toasty like a s’more 🙂 ) . I think it’s interesting to see the BSR spike on 1/18/16 as a result of not having any inventory in stock, but you can see a very quick recovery and we are now at a BSR of #1099 in Patio, Lawn & Garden.

*Update October 2016: Due to changes in Amazon’s Terms of Service addressing incentivized reviews, this method of utilizing promotions to get honest reviews is no longer allowed. Review Kick has now been relaunched as Jump Send, focusing on email communications to help Amazon sellers grow their business. You can still legitimately run promotions, which is a great way to increase sales velocity, but we do not allow any form of incentivized review. Find out more about how Jump Send can help you boost you Amazon business in our relaunch blog post.

Pay Per Click Campaigns (PPC):

We have spent a total of $357 for our PPC campaigns thus far, and have sold a total of 471 units overall. I will assume that we’ll continue to spend at this rate, and I will make sure to adjust keyword bids and campaign budgets accordingly.

Advertising Cost: $357

Amazon FBA Fees:

The cost that we pay to Amazon per unit depends on our final retail price. I am currently experimenting with different price points to find the optimal price that maximizes profits. More on this later. Here is how the FBA fees have looked thus far:

Priced at $27.99, FBA Fees are: $11.12 for 354 units = $3936.48

Priced at $19.99, FBA Fees are: $9.92 for 117 units = $1160.64

Total FBA Fees (for 471 products): $5097

Jungle Stix Revenue

Before we get discouraged with the laundry list of expenses, let’s take a look at the revenues. The overall sales are a bit easier to calculate, we can simply take that from Amazon’s Seller Central Dashboard.

For the dates 12/7/15-2/3/16, we have accumulated $12,307 (which you can see in the Seller Central Dashboard screenshot earlier). The sales trends per day are as follows:

Total Revenue for (471 sales): $12,307

Gross Margin:

Our Gross Margin will simply be the difference between the revenue and expenses. “Net Income” or “Profit” technically include other operating expenses and taxes, which we will not address here. As we are still actively selling, and for simplicity’s sake, let’s just focus on the gross margin.

What Does This Mean?

We are off to a great start. We’ve just about recovered all of our initial investment and we still have over 500 units to sell. As I’ve always believed, selling on Amazon is an opportunity that requires a long-term perspective, as I focus on building a real and sustainable business. The gross margin analysis above combines upfront one-time expenses and promotional giveaway expenses (which I don’t plan to incur again) along with variable expenses that will change according to the amount of units that we sell. Additionally, we paid a premium on our shipping for our first 1000 units in order to get the product live more quickly for the purposes of this case study.

How does the cost per unit change between the first order of 1000 and the second order of 1000 when we account for the different methods of importing? As a reminder, the first 1000 units were a combination of Air Express (100 units), Air Cargo (200 units), and Ocean Freight (700 units), while the second 1000 units are all Ocean Freight. This is how the costs change between the two shipments:

This reduction in cost will have significant ramifications on the profit margins, regardless of where we price the product.

To understand the long-term outlook on this, I like to look at the per-unit breakdown, as our costs are significantly lower for the second 1000 after we incorporate a normalized shipping cost and amortize the upfront investment costs across more units. So the $1341 that we paid to get an optimized listing will now be spread over 2000 (or 3000 units) as opposed to 1000.

The final net margin that we get per unit will be a combination of what the retail price is, and what the associated FBA fees are. This is how it breaks down for various price points, and whether it is the first 1000 or second 1000 shipment:

A note on PPC: In my advertising spend projections, I like to spread the advertising spend in each unit sold, whether advertising contributed to the sale or not. So for example, we have sold 471 units so far, and spent $357 for all advertising. While Amazon attributes $1587 and $719 in sales (per campaign), I think it is easier to note that we have spent $357 in advertising for 471 units sold, or $0.76 per unit. I plan to maintain this spend going forward, and can adjust this figure if conversion rates or CPC costs change.

Regarding Our Pricing:

As I mentioned earlier, we have started to see some new entrants in the “bamboo marshmallow sticks” niche. This was certainly expected, and is the reason most people do not share which products they are selling. If you tell someone exactly what product you’re selling and how much money you’re making, you’re bound to have copy cats.

We have felt the impact of this, and seen our average daily sales decrease. These competitors were selling at $20 per unit, so even though they had fewer reviews, they took potential customers away from us with competitive pricing. We were selling about 8 units per day before these competitors, but that has decreased to ~5-6 per day since. On 1/26 I changed the price to $19.99 to see how that would impact our sales and profits.

Since changing our price to $19.99, we have seen sales nearly triple to ~18 units per day. But how would the new pricing structure change our profit margins? This is what I want to find out….

My goal with experimenting with pricing is to gauge how the units sell at different price points, and what the optimal price is that generates a maximum net margin, and sales velocity. So we have seen that based on current seasonality and competition, we can sell about 8 units per day when priced at $27.99, we can sell 20 per day at $19.99, and if I split the difference at $23.99, let’s just assume that we will sell an average 14 per day.

I think that this simple pricing table reveals some interesting data, as we balance the tradeoff between lower-priced and faster selling items, with higher priced and higher margin sales. It looks like the winning combination, in theory, may lie somewhere in the middle at $23.99. Take a look at this table to see what I mean:

Overall Update on Sales:

Overall I think Jungle Stix are certainly a success. On the second shipment, its nice to see that even at the very low price of $19.99, we can still make a profit of $5.23/unit which is a 128% ROI. I imagine the sweet spot for this product is going to end up around $23.99 which would mean 213% ROI (and roughly $3,000-4,000 PROFIT/month).

On another positive note, going in to this, we knew that January through March would be our slow time, and we would see increased momentum as summer and fall approached. So that is good news.

As our Jungle Stix sell more and we gather more reviews, we should see both an increased conversion rate (people more likely to buy a product with many reviews), as well as an improved organic ranking for various keywords (we are currently on the front page for our main targeted keyword, “marshmallow sticks”).

We have not yet chosen the organization that will receive the proceeds, the current running poll is here if you want to send in your vote!

We Ran Out of Product. This Is What Happened.

In early January, we ran out of inventory! This was a result of the ocean freight shipment being held up at customs in Hong Kong for a few days, and delays in the States upon arrival. Argh, not ideal. However, I often see comments online about how this can be a momentum killer and plummet your hard-earned Best Seller Rank. While this may be true, depending on the strength of a listing and competitiveness of category, it is an inevitability at times with only so much you can do.

I did what I could to mitigate any problems: I turned off our paid campaigns and discontinued any promotions. There were three days of flat-lined sales (while we were out of stock) as you can see from the dashboard screenshot, but did it really hurt our BSR? There was a spike in BSR while the product was out of stock (and Amazon automatically removed the product from search results), but you can see from the chart below that the BSR eventually recovered within a few days:

Next Steps

We have ordered another 1000 units, which will be manufactured and shipped via ocean freight. I would like to exceed our baseline goal of 10 units per day, and see if we can push that up to 20 per day, as we have been doing while priced at $19.99. And I will keep an eye on the competition to see how they price as we move towards the summer months. As I’ve mentioned before, I am not keen on selling products on Amazon that become a race-to-the-bottom—there are never any winners in that situation! So stay tuned to see how this plays out, and please share any comments in the section below, or tweet @junglescout so we can have a dialogue in the twittersphere!

Greg thanks for the thorough analysis. In regards to ROI, would you be disappointed with something slightly below 100% in the first couple of months? The way that you explained ROI makes me think that you would actually be losing money over time with anything under 100%? Is your goal to establish junglestix as a brand and then later on figure out ways to get the ROI up?

Greg, thank you for being so transparent with this case study. I think you touched on a crucial point for all the newbies out there- that, this is a long term model and not a get rich quick scheme. Putting in quality, means longevity in a highly competitive market. I’m excited to see the next update, because this just shows with good research comes good outcomes!

Sorry, we should have been more clear on that. The $942 was actually the total cost from UPS for us to mail the cases from either our house (where we got the first 300 sent) or from our freight forwarders location (where the 700 were sent).

Hi Greg, watching this collaborative product launch was a real eye opener right when I needed it. After feeling a little discouraged following a failed attempt to complete my first product purchase (after 5 months of working with a supplier), watching the various stages of the launch made it seem like a fairly simple process overall. Now I know there are many details to each step along the way which can make it feel like many little mountain to climb, but because of this product launch, I felt like I could give it another try and now I’m working on my “first” product again. Because of my first failed attempt this second time is going much faster because of all the things I learned the first time around.Thanks Greg for deciding to put this launch on for all of us to see. It inspired me to keep going.Paul

One thing I’d say though is that JS does not need to be used for seeking out new products or niche products but also to search for products in a saturated category that require another product to make it work…i.e. those cheap ipod mp3 players (people still buy them, but I use this as an example), those devices need a larger memory and very often you need to buy an sdcard, so the key would be to bundle the mp3 player with an sdcard and you now have a new product.

I entered a category similar to this in the UK where the price of the individual unit was 15.99GBP (no sd card) my offer went in at 19.99GBP and was an instant hit….page 1 no13 within 3 days. Total product cost was 8.45, amazon fees 3.50, profit 8.05 per unit. I also varied the price up to 24.99 and is still sell….now im almost out of stock and china has shut down…nightmare. JS predicted 500/month sales and guess what..its not far off.

I am constantly on JS looking and love the product, so im rolling up my sleeves and looking forward to the next few products ive identified…..just waiting on china now.

Canton in oct-nov is going to be very interesting.

Sorry ive gone on and on but you don’t need a new product, sometimes just thinking outside the box and bundle can be the key.

Hey Greg,I feel like I’m on my way to a mini-MBA. Thanks for sharing.Question on shipping. I read an earlier post of yours (or Gen’s) that you could only ship max 500 units for oversize, yet you shipped 700 from your freight forwarder.I’m looking at an over-sized product and that has me concerned.

I actually didn’t ship all 700 from my freight forwarder right away. I asked them to store 240 in their warehouse for a few weeks until I had some more room at Amazon. They charged me like $12 for this.

Great stuff, Greg. Thanks so much for all the awesome value you’re providing. Just curious, looking back, is there anything you would have done differently or changed during any phase of this Collaborative Product launch?

Can you provide any recommendations for Air Freights that will provide A thru Z service where they handle all the customs, duties and taxes for importing the good from China?

Also on 1st shipment I will probably use a Courier to get the units to me faster. From your experience which courier is the cheapest out of UPS, Fedex and DHL. And do you have another other you would also recommend.

THANK YOU GREG & TEAM!!! As always, fantastic information – and very detailed. As I sit here pulling my hair out waiting for the end of 3 weeks of Chinese New Year and my first order, this was very timely. I am struggling with my price point because I am entering the market with a new variation in a category. It was really interesting to see your breakdown of projected sales and net margins at various price points and that $23.99 seems to produce the highest net profit. (FYI, I had to do my own math because I think you mistakenly entered the same graphic twice instead of the one that shows your COGS x Units sold/day at the three prices.)Thanks again. Looking forward to getting the spreadsheet from Gen and to your continued great posts!

Hi Greg,From following your PPC campaign I learnt that you put a 100$ budget a night?I unfortunatly, chose a very competitive product for my first product. It has a very high demand too. My Breakeven ACOS is 40%. I put a 10$ a day budget, 0.75$ per click on an Auto Campaign, I receive about 25 clicks a day. I enable the campaign at 1 pm until 12 pm, and it sells 2-3 units/day. I tried increasing the daily budget but didn’t sell more…. My Auto campaign is getting out of budget every day and Amazon advices to increase budget to 17$ a day. What do you suggest?Dafna.

What is your ACOS on the conversions you are receiving? If it is under 40%, and 40% is in fact your breakeven point, than you would theoretically want to have an infinite budget if you are still profitable for any conversion less than 40%!

It may be helpful to increase your budget to $17/day just for a few days, so that you aren’t missing out on any conversions, while also collecting significant keyword data that you can use to create a manual campaign that is more targeted and doesn’t allow Automatic targeting by Amazon, which may also include some bad traffic.

Hey great case study. I wondered how you identified the sticks to be a good seller to start with? Did you use Jungle scout to see data on other people selling the same product? or did you create the product from scratch, with simply a hunch that it would work.Thanks

Greg found the sticks by using the Jungle Scout Web App, entering the criteria that he wanted to see from a potential product, and the bamboo marshmallow sticks fit the criteria and had good metrics after a week of tracking the data as well. You can catch all that in writing and video here:

The short-term storage costs at Amazon are accounted for in the FBA fees that were included as an expense, and you are correct too that returns should be included as an additional expense. We did not include that in these calculations, but it should be incorporated into the overall costs. Great point!

Great article, loved the breakdown and your plans moving forward. I had one question around your on-costs, particularly shipping. In the Gross Margin table, you put the shipping at 47% of cost, can I ask why, have I missed something here.CheersBrian

We used 47% of the shipping costs in order to pro-rate the costs….at the time of writing, we have been through 47% of the first shipment (471 units out of 1000 that were initially purchased), so we wanted to have a true reflection of our costs to date, and not incorporate future costs if we were not incorporating future revenues as well. Does that make sense? Hope it helps!

Thanks! for sharing this awesome info.I am a wannabe seller.A few questions-Do you have to register your company name in China, since you are doing business with suppliers from China?If yes, did you get a firm which was able to get contracts for you in Chinese?Who do you use for your pre production, production, and post production Quality control service?How do you know you are working with a manufacturer and not just a salesperson who deals with different factories, especially for someone like me who is in the US and not visiting these factories personally

To answer your questions:-Greg did not register the company in China, in fact you do not have to have a legally formed company, you can be a sole proprietor as well.

-Quality control was essentially getting many photos at different stages of the process, and receiving the first shipment to confirm that the quality standard was up to par.

-There is no way necessarily to confirm a supplier vs. manufacturer with certainty without visiting, but if the numbers make sense, which it did for the Jungle Stix, and the relationship with the overseas supplier/manufacturer is built on a mutual trust, that can be sufficient to move forward.

Really enjoying the Jungle Stix updates. I just went to check out the listing and noticed that the main image has the words “longest on Amazon” and the Jungle Stix logo on it. I remember in one of the blog posts you did say that it is not within Amazon TOS. I’m just wondering what made you decide to put these in anyway, does it boost your sales so it’s worth taking the risk? Thanks

You are right, it is a calculated risk and technically not within the ToS. However, we can replace the image easily if it does become an issue, and the benefit as that it makes the unique value proposition immediately apparent to a potential buyer, therefore increasing the likelihood of conversion.

Wonderful article you guys, thanks! The guy at DHL said we need an FDA approval letter to import a non-electric steel coffee pot. Is this true? Is this difficult to get? Do we go through the FDA or the supplier or both?Thank you for your help.

Hi Greg, nice article! I just purchased the Jungle Scout pro and it works as promised! I would like to know what do you tell to the suppliers to be sure they send everything directly to Amazon. I´m kind of concerned about labeling and item preparing. Thanks

Hey Greg!! Thank you for this amazingly informative article! SO helpful. We recently purchased the JungleScout Chrome extension. It’s amazing!! Quick question, with covering being out of stock. We have a private label product that is ranked at about 2,000 consistently and does 10-15 sales per day. We have had some issues with our supplier and will most likely be out of stock for about a month. Do you have any suggestions with being out of stock that long. We are very worried! Do you think it’s possible to still get back to where we have been with some big promos maybe? Thanks! Natalie

Just a heads up, if you plug the ASIN into Amazon’s fee calculator the fees come out to about $10.32 (excluding 30 day storage fee), as opposed to the $9.92 shown here. Was that the effect of Amazon’s fee increase this year? It pulls the ROI down about 10% (or 13% if you include storage fee).

Have you had to fundamentally change your strategy on any private label products due to the rate increase? For example, being forced to go with ocean freight in situations where you would have previously not needed to before the fee increase.